The end of the Financial Year is a good time for all small business owners to take stock, assess their financial position and start looking forward to the new year and beyond. It signals a time when we can all start thinking about getting our accounts in order, preparing our Tax returns, completing the April - June Business Activity Statements and finalising our end of year Employee Payroll. Some of us also start thinking about ways to save money on tax and planning for growth and future success.
In the lead up to June 30, there are a number of steps small business owners can take to prepare themselves for this end of financial year and for the future. Note that some of these steps may need to be taken well before the end of the year whilst others can wait until the clock has passed midnight on the 30th June. We have listed of few of these below to help you get make the right decisions about which tasks you will need to prioritise over the next few weeks and those that can wait until the current financial year has ended.
RECONCILE AND COLLECT YOUR RECEIVABLES
You may need to chase down any outstanding payments from customers. If you are unable to recover any of the monies owed to from your customers, you may then be able to write them off as bad debts and this will allow you to claim those monies as a tax deduction. On the other hand, If you manage to collect any outstanding monies - this is a positive for your cash flow.
PAY EMPLOYEE OR PERSONAL SUPERANNUATION CONTRIBUTIONS BEFORE JUNE 30
Make sure you are on top of all your superannuation obligations. You will receive a deduction for all employee superannuation obligations which you pay, as long as this is paid by the 30th June. As super is such a tax-effective method of investing, you may also want to look at investing your personal assets in super. Check with your financial advisor or accountant about the salary sacrifice options available to you.
PRE-PAY ANY EXPENSES
Business owners can elect to pre-pay for services and supplies in advance and claim a deduction in the current financial year. Your accountant will tell you that bringing forward tax deductible expenses and deferring income can work to reduce your taxable income for the financial year.
REVIEW YOUR EXISTING EXPENSES – SUCH AS INSURANCES
As an individual it may be more tax-effective to purchase insurance through your superannuation fund, so you might want to look at the possibility of moving cover to your super fund or taking out a new policy inside super.
In addition, if you have income protection insurance, you could consider pre-paying 12 months’ worth of premiums and this could also bring forward a tax deduction. As a result, you’ll have to pay less tax overall for the current financial year.
PERFORM A PHYSICAL STOCKTAKE (END OF YEAR)
Ensure that you are reporting the correct value of your stock. Is it possible to write off or write down the value of any stock? Stock write offs will reduce the value of your reported profit. Your accountant will then be able to advise you on how this may act to reduce any tax liabilities that you may have.
MOTOR VEHICLE EXPENSES
At the end of the year you will need to take a record of all closing odometer readings for your motor vehicles. This will help your accountant correctly calculate your vehicle usage. In addition to this you will need a valid and up to date log book.
If you want to make your claim based on actual motor vehicle expenses, rather than the number of kilometres you have travelled, make sure that you have kept clear record of all expenses and receipts (i.e. fuel, maintenance, cleaning etc.)
Your accountant will generally assist with calculating your depreciation deductions for the year but it is important that you keep together all paperwork related to the sale or purchase of new assets during the year. This will make your GST claims as well as depreciation deductions easier to calculate and claim.
Record all assets in your system to ensure that you claim the correct GST amount.
BUDGETING AND BUSINESS PLANNING
The end of a financial year is also the ideal time to plan for the future. Develop realistic profit and loss forecasts for the next 12 months, and set business goals for the future.
Look at setting a budget for the business and consider the different options that will help drive your business forward. You may also decide to talk to an advisor about an exit strategy if you are considering retiring or selling your business in the next 5-10 years.
ONCE THE FINANCIAL YEAR IS OVER
You or your bookkeeper can now get started processing your accounts and getting everything ready for the accountant. Some of the things that will need reviewing include (but are not limited to):
Reconcile all bank accounts
Reconcile liability and general ledger accounts
Reconcile payroll tax liabilities and submit your Payroll reconciliation to State Revenue
Finalise and reconcile employee payroll, create and send payment summaries and send PAYG summary report to the ATO. Your accounting software may need you to close off the existing payroll year before you start preparing pays for the new financial year (MYOB)
Send reportable contractor payments report to the ATO
PREPARE FOR TAX TIME – HELPING YOUR ACCOUNTANT HELP YOU
In an effort to minimise the amount of income tax they will have to pay, some businesses can fall into traps and make common mistakes. The trap business owners most regularly fall into is simply not keeping up with the changes to tax compliance. The ATO is regularly introducing changes to laws and regulations, so it’s essential you and your accountant are aware of any changes that will affect your business.
A failure to adequately prepare is another downfall for many. Keeping on top of your accounts and records right throughout the year is the best plan of attack, ensuring all your accounts are reconciled and everything is where it should be. This can take a lot of stress out of tax time and ensure that all of your reporting is entirely accurate.
Similarly, don’t leave your tax paperwork until the last minute. Get on top of it early to minimise the hassle and guarantee that you’ll get the most out of your tax return.
SOME OTHER CONSIDERATIONS THAT YOU MAY NEED TO MAKE WHEN REVIEWING YOUR BUSINESS
Filing an Income Tax Return – You’ll need to provide a range of financial information for your accountant to review, as well as highlight any large or unique transactions. The information you accountant will need includes a profit and loss statement for the financial year, a bank reconciliation report, balance sheet and trial balance, general ledger report and more.
Business Activity Statement (BAS) – The end of June will require you to complete your quarterly or annual BAS. If you need help with this, an accountant or bookkeeper can provide assistance.
Australian Securities and Investment Commission Annual Report – This is a requirement for companies only, as is filling out a solvency declaration.
PAYG Withholding Payment Summary Annual Report – You’ll need to reconcile your payroll and provide payment summaries to your employees by the due date in July. Before you provide PAYG summaries to help your employees lodge their tax returns, reconcile the totals to your business accounts first.
Payroll Tax – Consider whether you may be over the threshold for payroll tax. Speak to your accountant to find out more.
Workers’ Compensation Insurance – Now is the time to get all of your business’ insurance requirements in order and review the policies you have in place. Take the time to work out your company’s projected wages and salaries for the financial year ahead. If there are any problematic exclusions in your workers’ compensation cover, see if you are protected against these risks in any other way.
Superannuation payments – These need to be taken care of monthly, and this is no different just because it’s the end of a financial year.
Fringe Benefits Tax Return – Some businesses will need to lodge this return. However, even if you’re not lodging a fringe benefits tax return, make sure that no relevant transactions have been overlooked and that all necessary employee contributions are made.
Staff salaries and awards conditions – Review the salaries of all your staff members and ensure that they are in line with the relevant awards and any other statutory requirements.
Government grants – If your business receives any government grants, take the necessary steps to ensure you are still meeting any required guidelines to receive those grants.